Do you own a construction business and wonder how to increase your cash flow? Is your business constantly busy but you’re confused as to where all your money is? You’re landing projects left and right, but at the end of the month, your profits are nowhere to be found. Don’t worry—this is a common challenge in the construction industry, and we’re here to help you solve it.
Busy Doesn’t Always Equal Profitable in Construction
Being swamped with work should translate to healthy profits, but that’s not always the case. Many construction businesses operate at full capacity while seeing minimal returns. Why? Because volume alone doesn’t guarantee profitability.
For example, a residential contractor took on 15 projects in one quarter—more than ever before—but actually made $12,000 less than the previous quarter with only 10 projects. The difference? Better project selection and cost management in the less busy quarter. So, let’s dive in and find out how you can increase cash flow in your construction business.
Track Every Dollar: Construction Costs Beyond Materials
In construction, your true costs extend far beyond lumber and labor. When calculating project costs, you need to include:
- Direct materials and supplies
- Labor hours (including overtime)
- Equipment costs (purchase, rental, maintenance)
- Permits and licensing fees
- Insurance premiums
- Office expenses
- Vehicle expenses
- Marketing costs
A mid-sized commercial contractor found they were underestimating overhead by 14% on each project. After implementing comprehensive cost tracking, they increased their net profit by $8,750 per month simply by adjusting their pricing structure.
How to Increase Cash Flow in Construction with Job Costing
Job costing breaks down expenses for each specific project, helping you understand profitability on a granular level. Without it, you’re essentially working in the dark.
How it works:
- Assign every expense to a specific job
- Track labor hours precisely
- Monitor material usage and wastage
- Compare estimates versus actual costs
- Calculate profit margin per project
One residential remodeler discovered through job costing that bathroom renovations yielded a 32% profit margin while kitchen projects only delivered 17%. This insight allowed them to shift their marketing focus and increase overall profitability by 23% within six months. If you want to increase your cash flow in your construction business – we can’t recommend job costing enough. It helps you pinpoint waste, delays, and ways to optimize time and expenses.
Our Recommended Solution: JobTread
At Level Accounting & Advisory, we recommend JobTread as our preferred job costing solution for construction businesses. JobTread provides comprehensive construction management software that streamlines job costing, scheduling, estimating, and project management all in one platform. Their construction-specific tools help you track every dollar spent on each project, giving you real-time visibility into your profitability. Many of our clients have increased their profit margins by 15-20% within the first year of implementing JobTread’s robust job costing features.
Tactics to Increase Cash Flow for Construction Companies
Even profitable construction businesses can struggle with cash flow. Here’s how to keep money flowing:
1. Improve Your Invoicing Process
- Send invoices immediately after project milestones
- Create clear payment terms (Net 15 instead of Net 30)
- Offer early payment discounts (2% for payment within 7 days)
- Implement electronic payment options
2. Require Deposits and Progress Payments
- Start with 25-30% deposits on all projects
- Bill at clearly defined milestones (not just at completion)
- Use progress billing to maintain steady cash flow
3. Watch Your Accounts Receivable
- Follow up on late payments immediately
- Consider factoring for large invoices
- Implement a system for tracking payment status
A concrete contractor who switched from monthly to bi-weekly invoicing and required 30% upfront deposits saw their average collection time drop from 47 days to 23 days, freeing up over $45,000 in operational cash flow.
Reduce Overhead Without Sacrificing Quality to Increase Cash Flow in Construction Companies
Construction overhead can silently drain your profits. Look for opportunities to trim unnecessary expenses:
- Rent equipment instead of buying when utilization is low
- Optimize crew sizes based on project requirements
- Consider subcontractors for specialized work
- Implement fuel monitoring and route planning
- Use technology to reduce administrative hours
One framing contractor reduced their annual vehicle costs by $27,000 simply by implementing a GPS fleet management system that optimized routes and reduced idle time.
Understand Your Profit Margins by Project Type
Not all construction projects are created equal. Analyzing profit margins by project type helps you focus on what’s actually making you money.
For instance, a general contractor discovered their average profit margins were:
- New residential construction: 18%
- Commercial renovations: 22%
- Residential remodels: 25%
- Government contracts: 12%
This knowledge allowed them to shift resources toward higher-margin projects, increasing overall profitability by 15%.
How To Increase Your Cash Flow for Your Construction Company: Budget Like a Pro
Creating and sticking to a budget isn’t just about controlling costs—it’s about making strategic decisions with your money. Implement these budgeting practices:
- Create quarterly budget reviews
- Set aside 3-5% of revenue for equipment maintenance
- Maintain a cash reserve of 2-3 months of operating expenses
- Budget for seasonal fluctuations
Turn Your Construction Business from Busy to Profitable
Running a busy construction company isn’t enough—you need to be profitable too. By implementing proper job costing, optimizing cash flow, reducing overhead, and understanding your profit margins, you can transform your business from merely busy to genuinely profitable.
At Level Accounting & Advisory, we specialize in helping construction businesses improve their financial performance through expert bookkeeping, payroll, tax strategy, and more. Our industry-specific knowledge helps contractors like you maximize cash flow and profitability.
Ready to stop working harder and start earning more? Contact Level Accounting & Advisory today to discover how our construction-focused accounting services can help you build a more profitable business.
